Mastering inventory risk: elevate your retail business to new heights

If you're an independent retailer navigating the challenges of the wholesale business in 2023, you're not alone. The past couple of years has seen retailers grappling with a surplus of inventory, resulting in significant setbacks. 

While the ongoing supply chain crisis certainly plays a role in this scenario, retailers have also been hindered by inaccurate inventory forecasts and assumptions. These challenges have resulted in retail inventory management nightmares, severely impacting profit margins across various retail sectors.

We understand that achieving 100% accuracy in inventory forecasts is an ambitious goal. Instead, we propose a different approach: reducing your exposure to inventory risks altogether. This is where Dropshipping by Orderchamp comes in.

Dropshipping is a strategy that holds promise for many retailers, but the transition can be daunting, especially when your existing operations are built around a traditional wholesale model. But don’t worry - Orderchamp’s got you covered! In this blog, we'll explore the concept of inventory risk and offer guidance on how to effectively manage it.

How inventory relates to your business objectives

Before delving into the specifics of inventory risk management, it's crucial to understand how inventory relates to your business objectives. The fundamental purpose of any retail or marketplace business is to create and retain customers. To achieve this, you must consider key questions such as:

• Who is your target customer?
• What do they value?
• How can your products meet their needs?
• What kind of experience do you aim to provide?
• What is your customer promise?
• How will you maintain financial stability while fulfilling this promise?

Retailers that can articulate clear answers to these questions and ensure alignment among their team members tend to outperform those that neglect the concept of the customer promise.

To effectively measure and manage inventory risk in your specific context, consider an exercise where you document your responses to the above questions. This exercise can provide clarity regarding existing inventory risks, which essentially encompass anything that hinders the fulfilment of your customer promise.

What is inventory risk and how to manage it

Without a well-defined promise, it becomes challenging to prioritise and manage inventory risks effectively. Depending on your customer promise, inventory management should closely align with it to minimise risks.

Managing inventory risk ultimately boils down to making informed decisions. High-quality decisions can mitigate risk and volatility, ensuring you can consistently deliver on your customer promise. While there are numerous approaches to managing inventory risk, these ones are the most important ones to keep in mind:

• Selecting the right goods: Choosing the right products aligns with your customer promise. Some customers value curation, meaning your product selection should be tailored to their tastes and preferences. Merchandising plays a pivotal role in achieving this. Asking questions like what your customer would have in their home or whether you're selling an experience or a necessity can help guide product selection.
• Determining right amount: Deciding how many of each product to purchase is essential. Consider factors like your customer's purchase frequency, typical order quantities, packaging expertise of your suppliers, the number of touchpoints the product belongs to, and the impact of quantity on margins.
• Setting the right price: After identifying the right products, pricing them correctly is crucial. Assess unit costs, landed costs, customer prices, and service level expectations. Evaluate alternatives, understand your customer's value perception, and consider the flexibility of margins.
• Choosing the right place: Modern customers prefer products available across various channels. While this may necessitate significant investments in technology and processes, you can provide access to products without physically stocking them. Define what "right place" means for your customers, considering their expectations and preferences.
• Choosing the right time: Meeting customer needs at the right time is crucial. Assess how timing affects relevance based on your customer's goals and behaviours. Consider seasonality, short-term influences, shelf life, and lead times for purchasing decisions.

Types of inventory risks

Different types of inventory risks can emerge in each of these areas, including lack of freshness, differentiation, contribution margin, available stock, accurate forecasts, and financial flexibility. Successfully managing these risks is essential for a retail business's stability and growth.

Dropship programs offer a powerful strategy to reduce inventory risks. These programs allow retailers like you to minimise on-hand inventory while expanding their product offerings to meet their customer promise. Dropshipping offers increased inventory control without the burden of adding new product SKUs.

How dropship programs reduce your inventory risks

Inventory risks in the retail world can stem from various sources, including fluctuations in consumer demand, the challenge of balancing stock levels, and the financial exposure associated with excess inventory. However, there exists a powerful strategy that can effectively mitigate these risks: dropship programs.

Dropshipping empowers retailers to optimise their inventory management while expanding their product offerings to meet customer demands. They provide you with greater control over inventory without the burden of adding more product SKUs, resulting in a dynamic and agile inventory strategy.

While dropshipping has garnered a degree of scepticism in the industry, it remains a valuable yet underutilised model for addressing inventory risks. Below, we'll explore how embracing dropship programs can lead to a brighter future for your retailer store.

1. Keeping your catalogue fresh

2. Differentiating your catalogue with unique brands

3. Expanding contribution margin with supply flexibility

4. Reducing dependence on available stock

5. Avoiding inaccurate forecasting

6. Freeing up financial resources for growth

1. Keeping your catalogue fresh

A dynamic and ever-evolving product catalogue is essential in today's retail landscape. Achieving catalogue freshness hinges on the velocity of supplier onboarding. The faster you can bring new suppliers on board and add more items from existing ones, the fresher and more relevant your catalogue becomes.

Being able to swiftly respond to trends, such as those on platforms like TikTok, by having products available on the same day can make a significant difference in meeting customer expectations. Dropshipping is a pivotal supply model for maximising catalogue freshness, as it removes the requirement of physically holding goods, allowing for rapid adaptation.

2. Differentiating your catalogue with unique brands

Catalogue differentiation is vital for sustaining long-term customer relationships. However, traditional supplier enablement methods, such as using distributors, can inadvertently diminish catalogue uniqueness. To truly stand out, it's essential to partner with suppliers that offer unique and less widely distributed products.

Dropshipping allows you to experiment with new, less commonly found brands and products without exposing yourself to significant inventory risks. Brands can be added to your site and featured in marketing efforts to test their viability before committing to bulk purchases and in-store merchandising.

3. Expanding contribution margin with supply flexibility

Every retail aggregator's core goal is to create and retain value in the form of contribution margin. To achieve this, it's crucial to consider the fully landed and loaded costs of products. This comprehensive approach helps optimise between various supply models and catalogue options, ensuring maximum contribution margin.

However, excessive focus on contribution margin optimization can introduce risks to other aspects of your business, such as tying up capital in physical stock. Dropshipping offers the flexibility to optimise contribution margin across your business by providing an additional supply model that can be strategically employed.

4. Reducing dependence on available stock

External supply chain risks can disrupt inventory management. Dropshipping presents a unique opportunity to bring the point of sale closer to the customer by manufacturing and transporting products in bulk, taking advantage of economies of scale, and shipping directly to customers. This approach reduces dependence on available stock and enhances your ability to meet customer needs..

5. Avoiding inaccurate forecasting

Accurate forecasting can be challenging, but it's essential for effective financial planning. By incorporating dropshipping into your product assortment, you can create a flexible program that combines both dropship and wholesale supply models. This approach minimises the risk of over-purchasing stock by aligning product acquisition with actual demand.

6. Freeing up financial resources for growth

Financial flexibility is a critical asset for retailers. Conventional financial models often tie up capital in inventory, limiting flexibility. Being able to allocate resources to marketing programs that yield results can be more beneficial than maintaining excess inventory. Dropshipping allows you to redirect capital towards successful marketing initiatives and adapt to changing market conditions.

Orderchamp helps you reduce your inventory risks

With immediate access to an extensive array of top-tier brands at Orderchamp, you have the opportunity to boost your revenue by broadening your product range. Begin cross-selling captivating products without the burden of inventory risks, as these brands will directly deliver items to your customers.

Our premium brands guarantee a five-star experience, characterised by rapid delivery, exceptional support, and substantial profit margins. As your reliable wholesale collaborator, we are dedicated to facilitating a seamless operational interaction between you and the brand, ensuring a hassle-free partnership.

How Dropshipping by Orderchamp works

Advantages of dropshipping by  Orderchamp

1. Maximising revenue from each customer:
   Immediately increase cart value and repeat purchases. Orderchamp's discovery marketplace helps you find the right complementary products to maximise traffic and sales from each customer. Leverage the power of fresh items to drive new customers to your store.
   
   
2. Diversify with risk-free merchandising:
   Discover what sells well in your store while reducing your risk. Our virtual inventory allows you to be in full control: you can decide which items you want to hold inventory for and which of our premium brands dropship directly to your customers.
   
   
3. Save time through full automation:
   Adding products to your assortment is simple, fast and fully automated; no need for manual integrations. Our automatic payments and order forwarding technology take care of a smooth handover process to our brands, saving you valuable time as an entrepreneur!